Amazon shares drop on holiday forecast

The retailer rolls out strong third-quarter numbers, but investors aren't pleased.

By Kim Peterson Oct 21, 2010 5:22PM
Amazon (AMZN) shares soared to a record high Thursday, only to drop some 5% after the bell as the company forecast disappointing operating income for the fourth quarter.

Executives cited higher costs, saying the company is investing in more fulfillment centers for the peak holiday shopping season, and will open two more in the next few weeks. Amazon has been improving its warehouses and distribution centers all year.

The company still managed to beat third-quarter estimates. Profit rose 16% to $231 million, or 51 cents a share. That's up from $199 million, or 45 cents a share, in the year-ago period. Analysts had been expecting 48 cents a share.

Revenue rose to $7.56 billion, a 39% increase from $5.45 billion in the year-ago quarter. Analysts had been expecting sales of $7.37 billion.

"Revenue increased 39 percent but operating income only grew 7 percent," said one analyst with BGC Partners, according to Reuters. "It's the opposite of what people want to see. People want to see more leverage coming out of the company."

For the crucial fourth quarter, Amazon's prediction for operating income took investors by surprise. The company said it anticipates a range of between $360 million and $560 million. Analysts had been expecting operating profit of $621.6 million.

Fourth-quarter sales were more in line with Wall Street. Amazon said it expected net sales at between $12 billion and $13.3 billion -- a 26% to 40% improvement over the fourth quarter of 2009. Analysts are expecting sales of $12.2 billion.

"Amazon's operating income forecast for the fourth quarter looks below the consensus even at the highest end of the guidance range," one analyst told Bloomberg. "It shows the margin pressure the company has been experiencing."



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